Why annual carbon accounting makes business sense.

Published on

Carbon footprint: a necessity for businesses.

The proportion of European companies investing in climate action has reached an average of 53%, which is 10 percentage points higher than in 2021, according to the European Investment Bank's 2022-2023 report. Each organization surveyed had at least 1,000 employees and annual revenues ranging from $100 million to over $10 billion.

Intentions are commendable, but progress remains to be made. Only 10% of the 1,850 companies surveyed worldwide by the BCG in 2023 are currently capable of effectively measuring their carbon emissions, a figure that has not changed since 2022.

Even in France, a country at the forefront of environmental impact measurement obligations, the situation is not much better. Since 2010, the Grenelle II law has required companies with more than 500 employees to publish their greenhouse gas emissions report (BEGES). However, according to the latest compliance study by ADEME (2021), 57% of companies were not up to date.

It is therefore evident that companies that anticipate the need to produce reliable carbon data will gain an advantage over others. Furthermore, every company would benefit from calculating its carbon footprint annually, beyond legal obligations. Here's why.

Why Some Companies Don't Do It

Understanding the importance of establishing a carbon footprint annually addresses all objections that may arise.

Here's a brief overview of the reluctance to establish a carbon footprint:

  • There is no real obligation to establish a carbon footprint

  • A carbon footprint is not a legal requirement

  • Unlike financial statements, annual variations in a carbon footprint are not analyzable

  • Some companies can do without a carbon footprint

  • An updated carbon footprint is of no interest to anyone

  • Establishing a carbon footprint is demoralizing, so it's better not to do it

  • A carbon footprint is too tedious and resource-intensive to undertake

There is no real obligation to establish a carbon footprint: FALSE

This idea is widespread but no less false. Indeed, a number of companies are legally required to establish a carbon footprint. Countries are gradually adopting legislation in this direction. For example, the obligation to produce a greenhouse gas emissions report (GHG report) was created in France by the Grenelle 2 law in 2012. The report must be published every four years and since 2016, it must be made available on the ADEME website.

In the United Kingdom, the Streamlined Energy and Carbon Reporting (SECR) was introduced in 2019. The UK government requires large companies to annually report their greenhouse gas emissions and the efficiency measures they have taken throughout the year. Nearly 11,900 companies are affected.

Until now, fines for non-submission of the report have been relatively mild, but things are changing.

In France, a law from October 2023 penalizes recalcitrant companies with fines of €50,000, or €100,000 in case of recurrence. In the UK, the Financial Reporting Council's Conduct Committee can impose civil penalties of up to £50,000 for non-compliance with the SECR. It is very likely that these sanctions will become increasingly severe over time and will apply to an increasing number of companies. It is not to be taken lightly.

A carbon footprint is not a legal requirement: FALSE

At least, that's not the observed trend. For instance, the European Union is accelerating those who still hesitate to calculate their carbon footprint. The Corporate Sustainability Reporting Directive (CSRD), which will apply from 2025 (based on data collected in 2024), is a case in point. Large companies and some listed SMEs are already affected.

The CSRD sets standards and obligations that concerned companies must include annually in a non-financial report. This report includes standards: the European Sustainability Reporting Standards (ESRS). ESRS 1 is dedicated to climate. Among the information companies will have to publish in this ESRS are the greenhouse gas emissions of the company across all scopes 1, 2, and 3.

In theory, this reporting is not mandatory. In practice, it is. It is up to the company to prove that the subject does not concern it if it chooses not to report on this issue. However, which company could claim not to emit any greenhouse gases? Preparing for the CSRD now is anticipating a demand that will affect an increasing number of companies: more than 50,000 companies will be covered by the CSRD, compared to 11,700 companies previously covered by the NFRD (Non-Financial Reporting Directive). Ultimately, most companies are likely to be affected.

Unlike financial statements, annual variations in a carbon footprint are not analyzable: FALSE

Like financial statements, a carbon footprint adheres to reporting standards. Globally, there is, for example, the GHG Protocol. Additionally, calculations may differ based on chosen assumptions, data granularity, country-specific factors, etc.

However, comparing emissions from year to year is possible, provided that the methodologies used, emission factors chosen, and the exact scope of activities are traced.

Therefore, the carbon footprint is an essential tool as it allows for diagnosis and, more importantly, identifies a company's dependencies on fossil fuels in order to try to reduce them. But it's just a starting point. The real challenge is to monitor emissions.

Therefore, a carbon footprint is a necessary but not sufficient condition. Hence the importance of conducting it annually. Thus, a company can establish comparisons, observe progress, and compare them to a trajectory aligned with the Paris Agreement.

Some Companies Can Do Without a Carbon Footprint: FALSE

"Why bother quantifying our impact since we are a service company? Isn't our impact negligible since we provide dematerialized services?"

Thanks to the internet and the service economy, material consumption and greenhouse gas emissions are supposedly a thing of the past. But that's a myth. Tertiary employment serves industrial production. When the former increases, so does the latter. Today, no one escapes materiality, not even the digital realm: terminals, data centers, network infrastructures—all of these do not appear magically.

Fortunately, this impact is taken into account for each company in the GHG Protocol. Scope 3 measures indirect emissions, including upstream and downstream emissions in the value chain. For service companies, Scope 3 often represents between 70 and 99% of greenhouse gas emissions. It would be hypocritical for a company to absolve itself of its users' and suppliers' emissions. Thus, each actor better understands their belonging to a system where elements are interconnected. Taking action means better integrating this systemic dependence by moving forward together.

An Updated Carbon Footprint Is of No Interest to Anyone: FALSE

No, a carbon footprint is not just another useless line in endless paperwork. It is a highly useful tool for several reasons. Firstly, it raises awareness of one of the greatest challenges of our time: the ecological crisis and climate change. Understanding one's environmental impact is identifying the levers for a more sustainable economy. Companies have every interest in doing so.

An exhaustive study published in the Journal of Sustainable Finance and Investment in December 2015 examined 2,200 empirical studies. It concluded that integrating CSR factors had a positive or neutral impact on financial returns in over 90% of cases. Specifically, return on equity was positive in 63% of cases and negative in only 8%.

Considering the potential benefits, can one really afford to overlook such opportunities in a given year?

Establishing a carbon footprint demonstrates transparency, seriousness, and goodwill. And that matters to many. According to a Cone Communication study in 2016, 83% of Millennials prefer to remain loyal to a company that considers socio-environmental issues.

They are not alone: a survey conducted by BVA for the European Investment Bank shows that climate is the second biggest concern for Europeans. Acting as if everything were normal, 'business as usual,' is out of step with an immense challenge.

Outdated or infrequent carbon measurements would indicate a carbon footprint poorly integrated into a company's strategy. How could such a company be taken seriously?

Establishing a Carbon Footprint Is Demoralizing, So It's Better Not to Do It: FALSE

"Why calculate a carbon footprint? All it will show is that my company isn't doing anything to decarbonize..."

An argument often encountered. But it is not valid for two reasons:

  1. Measuring one's impact and being transparent, even if the decarbonization trajectory has not yet begun, is still better than greenwashing. Without a carbon footprint, it's doubtful that a company could truly deceive anyone with very ambitious climate goals.

  2. This discourse only serves to legitimize inaction. However, there is an ecological urgency. Everyone must do their part to avoid a scenario of global warming exceeding 2 degrees.

A Carbon Footprint Is Too Tedious, and It Requires Too Many Resources to Mobilize: FALSE

For some, the carbon footprint is like an insurmountable barrier, as complex emission factors and indicators accumulate. And where to start when it hasn't been done before?

No need to panic. For companies that have already measured their carbon footprint for year N, doing so for year N+1 will be much easier. However, spacing out data updates risks losing competence. Conducting your company's carbon footprint will become increasingly difficult.

And if your company is starting from scratch, don't panic. Yes, calculating a carbon footprint is a complex task. But that doesn't necessarily mean it's a complicated one!

At Carbometrix, we've simplified the task for you with a platform that easily allows you to import your data, export assumptions, and emission factors used. All within a timeframe of two to eight weeks. No more excuses not to (re)take the plunge!

Are you interested by our carbon footprinting assessment method? Get in touch with us now!

Join our community

Subscribe for news on business sustainability